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Thursday, 31 October 2013

I just found out this article from Globetronics website. The source is from Digital News Asia dated Oct 21, 2013. It writes a bit of Globetronics's past, present and future, which I think is great.

*******

by Karamjit Singh

IT was the hot startup of its era –
before the Internet and its dotcom craziness, before smartphones,
before buzzwords like pivot, and almost before the venture
capitalists (VCs) came in.

Though a Malaysian Government VC did
play a critical role in its early days, which today sees Globetronics
Technology Bhd standing proud as a leading listed Malaysian company
in the semiconductor value chain, with revenues in 2012 of RM290
million (US$92 million). Near-term revenue growth looks set to be
strong with RHB Research Institute forecasting 2013 revenues hitting
RM361.8 million (US$114.8 million) and 2014 reveneus of RM448.1
million (US$142.1 million).

It is also a company that has the
enviable record of having enjoyed a continuous string of profitable
quarters since its inception in the northern Malaysian state of
Penang in 1991 – a sizzling run. This attracted the attention of
Malaysian Technology Development Corporation (MTDC), then a newly
launched government venture fund.

MTDC came in with a 30% stake in 1992
at a PE (price/earnings) ratio in the high teens, and the confidence
from this investment provided a further fillip to the founders that
they were on the right path.

Globetronics did have a running
start as a startup too. It began life with a multinational giving it
guaranteed business, in this case the Penang operations of US
semiconductor giant Intel Corp.

But there was still a lot of ups and
downs for the founders. For instance, just as banks today don’t
understand the Internet, back then, they did not understand the
semiconductor sector.

“So the founders had to dig up every
dollar saved, RM3 million, to start Globetronics,” says Heng Huck
Lee, its chief executive officer.

Heng, came on board in 1996. Like
Globetronics founders Ng Kweng Chong and C.K. Tan, Heng was formerly
at Intel too.

Why did Intel encourage Ng among all
their senior Malaysian team at that time, as the person they wanted
to outsource production too? According to Heng, this was because, as
a general manager of

Intel Malaysia at the time, Ng was seen
as having the most financial resources to be able to fund
Globetronics before revenue flowed in. “Plus, he came from a family
that was fairly well off too,” says Heng.

The management team today is led by
Heng, with Ng’s son, Ng Kok Yu, involved as corporate manager.

While Intel gave Globetronics a running
start, including recommending it to Sumitomo as its local partner
when the Japanese firm wanted to establish a manufacturing operation
in Malaysia in 1994, Globetronics does little to no business with
Intel today. In fact, all its end customers are overseas.

At the same time, the founders and
their management team have since then made all the right bets to
transition from a low-end player in the semiconductor value chain to
an integrated IC (integrated circuit) design and manufacturing
company.

Globetronic’s newly installed
multimillion-dollar manufacturing line.

In fact, one of the world’s top two
smartphone manufacturers has seen fit to sign an exclusive three-year
manufacturing contract with Globetronics to supply it with the
high-end sensors that go into smartphones and tablets.

When asked about the secret to its
success, Heng just says, “Technology changes to fast that you are
forced to adapt or risk being left behind.

But one clue may lie with Globetronics’
strong focus on not just R&D, but also D&D or design and
development, which is very much led by customer needs. The research
unit was formally established in 2002.

“Our D&D is focused on our
customers’ future requirements, and this allows us to stay relevant
to them and to help us reinvent ourselves,” says Ng Kok Yu,
pointing out that Globetronics was among the first Malaysian IC
manufacturers which ventured into making LED (light-emitting diodes)
components in 1998.

As a result, it has been enjoying 20%
growth rates in that business line ever since.

Customers will typically want to test a
manufacturer out first by giving it a small job. When they have a
little more confidence in you, they will then ask to co-develop a
product and after that, the next step is to have you make the product
for them.

“This is how we have gained
knowledge, new technologies and products; and how we have moved up
the value chain with our customers,” says Heng, whom Kok Yu credits
with having a sharp nose for future technology trends that
Globetronics has bet on.

The current trend it has invested
heavily in to build capacity is around the use of sensors in
smartphone and tablets, especially proximity sensors to save battery
life, and gesture sensors.

“New sensors such as gesture sensors
are coming very soon and here we have a very good partner from
Switzerland with whom we have co-developed the technology, and herein
lies our competitive advantage,” claims Heng.

Globetronics is also claiming to be the
first company in the world to integrate the proximity sensor and
emitter into a single chip. Apparently, most companies cannot package
this into an integrated chip due to limitations in sensitivity and
limitations in technology to package it small enough.

But Globetronics has, with its
sensor (pic: smart phone sensors on a 8" wafer
substrate) being the smallest in the world.

“This is our competitive advantage
and is not an easy technology for people to try and take away our
market share. That’s why no one can replace us,” claims Heng.

Its efforts in research have not gone
unnoticed. MIDA (the Malaysian Investment Development Authority) has
granted it an RM20-million (US$6.3-million) Domestic Investment
Strategic Fund in 2012, which is claimed via reimbursement.

MIDA is a government agency that
promotes the manufacturing and services sectors in Malaysia.

The funding will likely used for
enhancing Globetronics’ sensor technologies and smartphone imaging
products.

It was not an easy journey. It took 15
months of convincing to get its Swiss customer to co-produce this
sensor. Along with the global smartphone customer, “the process has
been very demanding, and particularly in terms of them assessing our
company systems and people,” says Heng.

But Globetronics has passed all the
meticulous tests and is not resting on its laurels. Heng shares that
it has a small war-chest of up to US$20 million for a ‘first bite’
to invest in interesting companies.

“So far, we have not seen anything
that we have been unable to resist,” he says, eager to emphasise
that Globetronics is still as hungry as ever. It will grow via the
acquisition method or organically.

For now, with its focus on the LED and
sensors market, Globetronics is looking at between 15% and 20% annual
growth over the next three to four years.

“We are very confident that we have
the right products in the right growing segments. Coupled with that,
if we can translate all our major efforts in development and R&D
to some new products, the next three to five years will be very
exciting for us,” says Heng.

Wednesday, 30 October 2013

From now on, no more DIBS, but you can pay only as low as 2% down payment to own a luxury serviced apartment. If it is not enough, give you free legal fees some more.

Is DIBS really so important?

Harbour Place, probably one of the best Penang mainland address, has been a quite successful project by PJD so far. This latest addition Woodsbury Suites has been launched earlier in September with price starting from around RM410psf.

Now PJD will probably launch the second tower. I believe that the price will start from at least RM450psf. If it is launched at price lower than RM400psf, then I would say that property price may drop soon.

So this weekend, if I have time, I wish I can pay a visit to its sales gallery to check out the crowd and stickers. Of course, I can't afford to buy anymore...

Both Tropicana and CMMT has mutually agreed to terminate discussion of the sale of Tropicana City Mall and Office Tower, as both parties are unable to conclude the terms of sale and purchase agreement.

Surely the de-gearing plan of Tropicana will take a slight setback. However, this may also indicates that Tropicana is not in a desperate situation to dispose its assets cheaply to cut down its debt.

The collapse of this deal surely breaks a lot of people's glasses, as Tropicana City Mall is regarded as a good fit to CMMT's portfolio. Anyway, CMMT may save its resources to acquire Queensbay Mall in Penang, which is not inferior to Tropicana City Mall.

From Tropicana's 2012 annual report, its shopping mall and office tower give a yield of 5.25-6.5% in 2012. Its long term vacancy rate stands at 5% while its long term growth in rental rates is 5-10%.

This announcement comes soon after the Budget 2014 speech. How will it affect Tropicana's share price?

At this point of time when I'm writing this post, Tropicana's share price has gone up 3 sen to RM1.44. Is it a blessing in disguise?

Gtronic's cash flow has been magnificent so far, in which it has generated RM42.2mil cash mainly from operation. It has cleared all its debt since year 2012 but now a short-term borrowing of RM4.8mil appears in its balance sheet, though it is cash rich. Is it going to acquire something soon?

While having spent RM38mil of capex in FY2012 mainly in sensor product investment and capacity expansion, and paid RM29.8mil in dividend, Gtronic was still able to generate RM6.8mil of positive cash flow in FY2012. With its current positive cash flow at RM42.2mil (after RM22 paid as dividend so far in FY2013), more dividend is expected for FY2013.

Gtronic is definitely a good company with good growth potential and dividend payout. However, it seems to be overvalued at the moment and I might sell some if the time is right.

Anyway, I do hope that it can acquire some good business within this year.

Monday, 28 October 2013

As widely expected, Budget 2014 will address the escalating property price, and RPGT and DIBS will be the target.

True enough, RPGT has been increased to maximum 30% and DIBS has been prohibited. Apart from these, minimum price of property that can be purchased by foreigners is increased from RM500k to RM1 million.

As expected as well, all the major property developers share prices collapse today.

Are the measures in Budget 2014 very effective in curbing the problem?

I don't think so.

For RPGT, if you gain from property bought and sold within 5 years, you pay maximum 30% tax. You still have 70% net profit, which is not bad at all.

No DIBS, so what? How much is the loan interest buyers pay during construction of new property in 2-3 years? Not much actually as it is charged according to the progress billings.

Property developers can give rebate to compensate for the DIBS, and it is even better as it can reduce downpayment substantially. Rebate is not prohibited right?

Lets say if I buy a RM500k condominium. I get a 90% loan and need to pay RM50k as downpayment to developer. Developer can give rebate RM30k, which means I only need to fork out RM20k instead of RM50k.

As for the foreigners RM1 million limit, I think it's good and serve its purpose better. Foreigners buy property in Malaysia because it is dirt cheap to them. So, this measure may more or less affect high-end property sales especially in Iskandar region as there are quite a lot of Singaporean investors I guess.

What is more useful is a step taken few years ago whereby bank can only loan up to 70% for residential property buyers with more than 2 residential properties. I think this has stopped a lot of small fish property investors like me from buying more. For the big fish, they will be happy as less people will fight with them for a unit. So rich become richer...

But anyway, generally, investors and speculators will be more cautious in their investment, as they may sense that the property cycle may turn the other way round soon.

Personally I don't think the property price will drop, but it will stabilize or increase in a slower pace.

Saturday, 26 October 2013

Since listed in year 2001, Weida has achieved an uninterrupted growth in revenue for the last 12 years.

For FY2013 ended March 2013, its revenue grows another 23.7% from RM309.7mil to RM383.2mil, while its net profit increases 29.1% from RM39.3mil to RM50.8mil.

However, there is a one-off disposal gain og RM59.9mil in FY2013Q4 (ended Mac 2013), in which Weida disposed its oil palm plantation. Thus, it will be a great challenge for Weida to surpass its FY2013 net profit of RM50.8mil in FY2014.

Without factor in the disposal gain, Weida's profit before tax in FY13Q4 is just RM3.3mil, which is a drop of 72% compared to the preceding FY13Q3 of RM11.7mil.

However, Weida posted a decent FY14Q1 financial results in which it registers RM9.9mil net profit but its revenue of RM88mil is the lowest in the last 4 quarters.

From its historical quarterly reports, Weida's quarterly earnings usually fluctuates a lot mainly due to timing of billings in work division. Thus, it may not produce similar profit like FY14Q1 for the whole FY2014.

RM mil

FY13

FY12

FY11

FY10

FY09

Revenue

380.6

309.7

285.9

276.2

267.9

PBT

30.2

30.1

34.5

28.0

26.6

PAT

50.8

25.2

21.8

17.2

15.0

The figures in the table above may not be accurate especially the PBT & PAT, as some figures are restated later.

Weida is a Sarawak-based diversified group founded in 1983. Currently it has 4 core businesses:

Recently disposed business segment which was started in 2007. It was still loss-making while being disposed.

Weida currently diversifies into property development segment and will launch its first property Urbana Residences in Ara Damansara in the last quarter of CY2013. Urbana Residence comprises 356 units of serviced residence in a 16-storey building with an estimated GDV of RM230mil. It is a joint venture with land owner.

In year 2014, Weida plans to launch its second property project on a 2.93 acres land in Mont Kiara. It is also a JV with land owner and has an estimated GDV of RM330mil.

Urbana Residences, Ara Damansara

Actually this is not the first time Weida ventures into property business. Back in year 2007, Weida purchased a significant stake in listed property developer Mutiara Goodyear, who developed Bandar Tasek Mutiara (Pearl City) before Tambun Indah took over. Weida was its single largest shareholder at 13.8% in 2009 but subsequently sold all its shares in year 2009. Mutiara Goodyear was then changed its management and its name to Nadayu.

This is not the only case that Weida invested and divested in a relatively short period of time. In year 2007 as well, Weida diversified into oil palm plantation business when it acquired 16,000 acres of agriculture land in Sarawak. The land was planted with oil palm in stages. In end of year 2012, Weida decided to dispose all its plantation business to TH Plantation. The disposal was completed in 27/2/2013.

The plantation division started to produce revenue in Oct 2011 but was loss-making until the disposal, as it usually takes more than 5-6 years for the palm trees to mature and produce significant amount of fruits. I think Weida chose to dispose its plantation at this time mainly because it sees greater prospect and faster earnings from property development, besides current lowish CPO price.

The cash gained from disposal of oil palm plantation comes just in time for Weida's first foray into property development.

Before the said disposal was completed, Weida's cash stood at RM63.1mil while its total borrowings amounted to RM158.5mil at the end of FY13Q3 (ended Dec12). In its latest FY14Q1 quarterly report, it has a total cash of RM259mil and total borrowings of RM172.6mil. Thus, it is currently in a net cash position.

RM mil

FY14Q1

FY13

FY12

FY11

Manufacturing Rev

54.2

195

140.3

116

Manufacturing Profit

7.1

27.9

14.1

15.2

Towers Rev

16.8

32

66.4

38.5

Towers Profit

6.1

7.1

17

13.7

Other Works Rev

12

122.9

75.4

103.9

Other Works Profit

0.7

2.3

5.9

9

Service Rev

5

22.9

27.4

27.5

Service Profit

0.5

1.2

-0.5

1.5

Segment Revenue & Profit

Weida generates consistent income through long term contracts in wastewater management and rental of telecommunication towers.

So far Weida has 3 long term contracts of 25 years each with Sarawak government for the management and maintenance of septic sludge treatment plants (Kuching 10th year, Sibu & Miri 2nd year). However, as we can see from the table above, service division just contributes a little to its profit, as it's a JV with other company.

Weida has built 362 telecommunication towers to date mainly in Sabah (from 60 towers in 2007) with two third of them under long term maintenance contracts.

From a recent interview with The Edge, Weida's MD Datuk Lee mentioned that the estimated net rental income from the towers in the next 5 years will be about RM70mil, while the concession income from the septic sludge treatment will be about RM60mil in the next 5 years.

In the same interview, The MD also said that he foresees the company's revenue from HDPE products will double to RM400mil in 5 years. With its current plants running at 70-80% capacity, Weida has allocated RM100mil capex to boost its capacity from 20,000 tonne/annum to 50,000 tonne/annum.

If what the MD said are realistic and not boasting, then Weida may have a bright prospect ahead.

Weida's HDPE products

Weida has a strong presence in the East Malaysia with 78% of its revenue comes from there. It plans to expand more to Peninsular Malaysia especially Klang Valley and Johor.

Property development in Klang Valley may help to build Weida's reputation in the peninsular if successful. The new division will push up Weida's revenue, margin and earnings significantly like what we can see in Scientex and Fitters.

In year 2007, Weida has expanded its presence in the Middle East through a turnkey contract to study, design and build sewerage and water treatment plants in Syria. Though Weida has completed its work in Syria, it suffers some impairment loss on receivables due to the political unrest in Syria. So it may not dare to get new contracts there I guess.

Weida's ventures into Syria, Plantation and Mutiara Goodyear are all short-lived. How about its property division?

I think Weida will have a great start in property as the location of its property in Damansara and Mont Kiara is strategic. However, Weida needs to scout for more landbanks to ensure that its property division will continue to prosper.

But, so many companies join the property development lately. Is this a healthy situation?

Weida is trying to break RM1.75

Perhaps excited by the property venture, Weida's share price has reached all time high of RM1.75 recently. At this price, is it still worth to buy?

If it is not because of the one-time gain, I think Weida's profit after tax for FY2013 will be around RM20mil only, which is lower than its preceding year of RM24.1mil. Thus, EPS for FY13 will be about 15sen. At RM1.75, its PE ratio will be 11.7, which is not cheap for a company in industrial sector.

However, this does not factor in property development which should start to contribute in FY2014. With normally higher margin in property development plus organic growth of its other core businesses, Weida may give investors a surprise in FY2014.

Weida usually gives away 20-30% of its net profit as dividend. It paid the same 4sen (less tax) dividend yearly since year 2009. For FY2013, it pays 4sen dividend plus a special dividend of 1.5sen for its disposal gain. Without the special dividend, the net dividend of 3sen (after 25% tax) translates to a yield of just 1.7% at share price of RM1.75.

Anyhow, I am keen to know its Q2 results which will be announced next month, while waiting for a lower entry price.

Friday, 25 October 2013

I remember in year 2010, during Budget 2011 speech, our PM mentioned a company "Karambunai" in his speech. Almost immediately, the share of Karambunai shot up like a rocket.

I have an opportunity to join the party early at that time, as I was sitting in front of the TV and computer, but I didn't. I witnessed the sudden buy order of 500,000, 500,000, 500,000 non-stop. Karambunai's share price rose from merely few cents to about 25sen in a few days.

Karambunai is supposed to build some resort in Sabah if I remember correctly.

However, look at where is Karambunai now. It is trading at 10sen at the moment. The more important thing is, it is loss-making for the last 5 consecutive years.

How about the resort now? I'm not sure.

For this Budget 2014, surely many investors are watching while putting their hand on a mouse.

Though FY14Q2 revenue is lower by 5% compared to the preceding quarter of FY14Q1, the PBT, PBT margin and PAT of FY14Q2 are all higher.

For the first half of FY2014, revenue and PAT are higher by 2.2% and 8.6% respectively compared to 1HFY13.

There is a significant shift of contribution from trading to manufacturing segment. The lower revenue from trading division is said to be due to lower demand from oil & gas sector with slower project execution. It is a bit worrying indeed.

Nevertheless, after acquisition of Nautic Steel and expansion of its manufacturing capacity, the contribution from manufacturing division is generally in an increasing trend. It has surpassed the trading division in FY14Q1.

The US anti-dumping suit on welded stainless steel pipes from Malaysia will take effect from September. Pantech did say that this product just comprises 3% of its total revenue. Lets wait and see how it goes in the next quarter result.

Since accumulating lots of debts in FY13 due to the acquisition of Nautic Steel, we can see that the borrowing has been pared down while the cash is increasing slowly. This is because Pantech is able to generate positive cash flow from its operation consistently.

As a result, its net debt to equity ratio has gone lower to 0.31 compared to 0.39 last quarter and it can still maintain its quarterly dividend by giving out a 2nd interim tax-free dividend of 1.2sen.

Though it is not an outstanding quarterly result, the future of Pantech is still exciting to me. I think I have no reason to sell or reduce my small stake in Pantech at the moment.

Tuesday, 22 October 2013

If I study my previous mistakes in stock trading, they are all too familiar.

First, impulsive buying at overvalued price. Then the share price went down. Checked the news and analyst reports, high target price given, so bought again to average down. Then some bad news emerged, share price tumbled again. Media and management gave some positive news. Analysts target price remained above current price. Bought more to average down.

Next, realized the mistake, but reluctant to realize loss, so kept as "long term investment" and avoided further average down. Price dropped further. Then, as lack of fund to buy other shares and saw others flying high, finally decided to sell with pain.

Now this scenario seems to recur in Tropicana.

Tropicana is the first share I bought in my current re-shuffled portfolio, besides Tambun which was bought long time ago.

I have to say that it was rather an impulsive buying as it actually does not fulfill my criteria of low PE, low gearing, high ROE & high dividend. The only exciting part is the growth potential. I bought it because of the story it sells - the ambition to grow towards the big property players like SP Setia, Mahsing, IJMLand etc.

Perhaps I should have studied more stocks before buying Tropicana, as I actually found quite a lot of better stocks after owning Tropicana. In another words, I should wait with cash in hands until I find a stock that really meets my criteria.

At the entry price of RM1.89 back in early June, I have lost 23% on paper on Tropicana. If you look at the price chart, you can see that it is my bad habit again - like to buy a stock that drops a lot.

I did not practice cut loss if I intend to invest long term. Previously I did set a cut loss at 8% when sometimes I trade purely using technical analysis.

Should I cut loss now?

Tropicana 218McAlister

Recent Q2FY13 results released in late August was quite ok. Though net profit drops 12% QoQ, revenue rises to a record high of RM362mil.

For the last few months, I think the development in Tropicana is quite encouraging.

First, Tropicana is buying more land in Klang Valley and Pulai, especially the Canal City land next to IJM's Bandar Rimbayu. Though it may stress its already tight balance sheet, but I think it is a good deal in long term. Land will always appreciate and it can be sold to realize gain.

Through its press release after the announcement of Q2 results, Tropicana reveals that they achieved record sales of RM1.06 billion in 1HFY13. Its locked-in unbilled sales stand at all-time high of RM1.65bil at the end of 1HFY13. It plans to launch another RM2.05bil worth of new projects in the second half of current financial year.

Tropicana has just launched Bayberry in Tropicana Gardens and previewed its first development at Tropicana Metropark, Pandora serviced residence in Q2. Both received overwhelming response with Pandora 95% sold to date. Since its preview in May this year, the price of Pandora is said to increase 33% from RM650psf to RM850psf. Tropicana will launch its next project Paloma in this 88-acre RM6.61bil Tropicana Metropark soon. Guess what will the price be?

Tropicana Metropark

Another new project lining up this year is Tropicana Heights in Kajang. This 199-acres township has an estimated GDV of RM2.2 bil. I'm not sure whether it has been officially launched but Kajang is a good location and Tropicana should not have problem selling it.

Besides central region, Tropicana has also recently launched its first phase of Penang World City, a joint-venture with Ivory Property.

All these new launches should be able to support Tropicana sales and profit in the near future.

As part of the exercise to reduce its gearing, Tropicana has signed letter of intent with CMMT to dispose Tropicana City Mall & Office Tower to the latter. The announcement was made back in 23/8/2013 but there is still no update as everything is in due diligence state.

Tropicana Heights

Even though I am a bit regret after buying this stock, I still have some confidence in it. It still has not trigger my sell signal actually.

Perhaps the recent share price collapse is related to its proposed 10% private placement announced in July?

Are the investors pissed off by the non-stop corporate exercises that expand the company's shares and dilute its earnings like no tomorrow?

Tropicana has just completed 10% share placement in June 2013 at the price of RM1.78. Could it be someone trying to pull down the share price so that they can get the placement shares at cheap price? The placement price will be decided at not more than 10% discount for volume weighted average market price for the past 5 days.

Perhaps Tropicana's projects are mostly bought by speculators and it may be affected by the upcoming Budget 2014 that continues to suppress speculating activity?

So, the impulsive buying done, the share price down, the good news out, the analyst target price are high (>RM2), and the share price continues to drop. It's some sort of deja vu.

So next, should I buy now to average down to repeat my previous mistake all over again?

I am tempted to, but lack of fund. Anyway, better wait until after the Budget 2014 and private placement.